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Business Studies Year 13 revision Day 19 - Net Present Value

On day 19 of the Year 13 Recap we focus on the Net Present Value which is the final recognised investment appraisal method in A-level Business.

How often have you heard the phrase ‘Time is Money’? Well, this phrase links succinctly into finding the net present value of an investment project. This is because a fixed sum of money today is always worth more to an individual than the same fixed sum of money in a years time.

This is due to a series of factors which cause the real value of money to fall the longer it takes for us to receive that cash payment. This applies to investment projects because the returns are generated over the lifetime of the investment and not immediately. Therefore, if a business is to appreciate the real returns of an investment over time, the value of future returns need to be discounted by an appropriate amount to reflect the time value of money concept. This is the added value of using the Net Present Value.

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